Employee reactions to performance appraisal system in Indian banks.

AuthorJain, Sheelam

Introduction

Performance appraisal system (PAS) has been a key organizational process for the management and the development of personnel (Lee, 1985; Eberhardt & Pooyan, 1988; Baruch & Harel, 1993; Fletcher, 2001; Tizner et al., 2001; Levy & Williams, 2004; Ferris et al., 2008). Fletcher (2001) defines performance appraisal (PA) more broadly as "activities through which organizations seek to assess employees and develop their competence, enhance performance and distribute rewards". Performance appraisals are considered to be the most essential element in creating a positive work environment and involve a range of attributes such as reward, communication, feedback, employee reactions, equity and fairness, trust and acceptance, attitudes towards conflict, and social context (Brown & Heywood, 2005; Elenkov, 1998; Erdogan et al., 2001; Fulk et al., 1985; Lawler, 2003; Levy & Williams, 2004). Keeping & Levy (2000) argued that it is necessary to address employees' reactions toward their performance appraisal for many reasons, including (a) the notion that reactions represent a criterion of great interest to practitioners and (b) the fact that reactions have been theoretically linked to determinants of appraisal acceptance and success but have been relatively ignored in research. Earlier researchers have claimed that in order for performance appraisal to positively influence employee behavior and future development, employees must experience positive appraisal reactions to important aspects of the appraisal process (Bernardin & Beatty, 1984; Cardy & Dobbins, 1994; Kuvaas, 2006; Murphy & Cleveland, 1995). Appraisal reactions such as satisfaction, acceptability, and motivation to use feedback, are cited as an important trend in the appraisal research during the past ten years (Levy & Williams, 2004).

The domino effect of Liberalization-Privatization-Globalization and the advances in information and communication technology have major HR implications for Indian banking sector as well. This scenario has forced the banking industry in India, which is largely in public sector, to compete with not only the indigenous private banks but also with the foreign banks operating in India. Simultaneously, it is not an easy ride for private sector and foreign banks to challenge the prima donna status of public sector banks in India. How well these challenges are met will mainly depend on the extent to which banks leverage their human resources in the context of changing economic and business environment. Erdogan (2002) suggested that performance appraisal can make important contribution to effective human resource management, and eventually organizational performance. Employee performance has, therefore, been identified as a crucial determinant of success in the banking sector and hence there is a growing interest in the effective management of employee performance. A number of observations have been made in earlier research (e.g., Shrivastava & Purang, 2012; 2011; Juneja, Shankar & Bhattacharya, 2007; Priyadarshini & Venkatapathy, 2003, etc.) as regards the performance appraisal practice in the banking industry, but there is dearth of studies which addressed assessment and comparison of PA reactions among public and private sector banks and also foreign banks operating in India. The present study has been an endeavor to address this research gap.

Review of Literature

Extant literature has shown that there is a critical link between satisfaction with appraisal processes and appraisal effectiveness (Bernardin & Beatty, 1984; Dobbins, Cardy & Platz-Vieno, 1990). Dipboye & de Pontbriand (1981) showed that employees were more satisfied and had greater acceptance of PA when employee development and performance improvement were emphasized in it. Jain & Kamble (2005) pointed out that the effectiveness of performance appraisal system is based on the extent to which the system is HRD oriented. Well structured appraisals should directly relate to noted improvements in any weak areas (Broady-Preston & Steel, 2002). The benefits of an effective appraisal scheme lie in the fact that it leads to improved performance throughout the organizations (Fisher, 1996). Studies on employee's reactions to appraisals and feedback (e.g., Taylor, Masterson, Renard, & Tracy, 1998) suggested the outcome of appraisal in improving employee performance. The perceptions of fairness influence the way people think, feel, and act on the job (Bies & Shapiro, 1987), thereby influencing positive affective reactions like performance appraisal satisfaction (Thurston, 2001; Cook & Crossman, 2004). Feedback from the performance review should be used as a basis for development and improvement. Research has shown that effective feedback does improve employee performance (Latting, 1992). Further, if participants do not perceive the system to be fair, the feedback to be accurate, or sources to be credible, then they are more likely to ignore and not use the feedback they receive (Facteau et al., 1998). In an empirical study of 163 BPO employees, Monis & Shreedhara (2010) found that objectivity in the appraisals, accuracy of the previous appraisals and viewing appraisals as a motivating tool have emerged as the significant variables and all these three variables are positively associated with the satisfaction of the respondents towards the performance appraisal system. Employees demonstrate higher level of commitment when they perceive that performance appraisal is associated with employee development (Lee & Bruvold, 2003). In their recent review of PA research, Levy & Williams (2004) called for more field research on the relationship between PA reactions and employee attitudes and behavior. They claimed that an appraisal system will be ineffective if ratees (and raters) do not see it as fair, useful, valid, accurate, etc. If ratees are dissatisfied or perceive a system as unfair, they will be less likely to use evaluations as feedback to improve their performance (Ilgen, Fisher & Taylor, 1979). Jawahar (2006) investigated the potential predictors and consequences of satisfaction with performance appraisal feedback and found that satisfaction with rater and previous performance ratings influence employees' satisfaction with performance appraisal feedback. Shrivastava & Purang (2012) found that older employees have performance expectations that are well set, better clarified, have greater confidence in their raters and feel they are provided more feedback, rating decision are explained in a fair manner and are treated in a respectable way whereas in the case of private sector bank employees, as age increases they do not feel their expectations are well set and clarified. Measuring appraisal effectiveness involves, among other things, assessing perceptions of or actual rater errors and biases, rating accuracy and reactions of raters and ratees about the PA system in place (Keeping & Levy, 2000). They further claimed that satisfaction with performance appraisal is the most frequently measured appraisal reaction.

The Study

Based on the review of extant literature, the present study assesses employee reactions to Performance Appraisal System (PAS), with respect to: a) outcomes in terms of performance improvement and employee development; b) fairness of PA rating; c) accuracy of PA rating; d) providing feedback; e) explaining rating decisions; and f) overall satisfaction with appraisal system. Therefore...

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